Triple whammy for ailing Japan economy

PM's remarks, shrinking trade surplus and monthly govt report all convey the message: The worst is yet to come

TOKYO - Japan's beleaguered economy was hit by more bad news yesterday: a monthly report predicting that things are worsening, news that the trade surplus is still shrinking and gloomy remarks from the Prime Minister.

The government left its economic assessment unchanged in this month's report, breaking a trend of steady downgrades every month for the last six months.

However, it still painted a bleak picture for the world's second-largest economy.

'The economy is deteriorating. Exports and industrial production continue to decline,' the report said.

'There are no signs that the economy is bottoming out,' said Mr Haruhito Arai, a counsellor for economic and fiscal policy at the Cabinet Office.

In a sign of the bad times for exporters amid a prolonged slump in overseas economies, the once-massive trade surplus shrank 65 per cent to 252.1 billion yen (S$3.7 billion) in May.

With a 449.5-billion-yen deficit in the services balance, the trade balance for goods and services was in deficit for the first time since January.

Following the release of the figures, Prime Minister Junichiro Koizumi said the economy was in a severe condition.

He highlighted the difficult task he was facing in implementing structural reform measures that could worsen conditions in the short term.

'The economy is not in a good shape. The condition is severe,' he said in a panel discussion involving seven Japanese political party leaders.

A string of bad economic data on top of a 0.2 per cent contraction in first-quarter gross domestic product have led most economists to believe that the Japanese economy is in a recession already.

Mr Koizumi has vowed to press ahead with reforms despite the short-term pain that these changes are expected to inflict on the economy.

The slowdown has, meanwhile, put more pressure on the Bank of Japan (BOJ) to take further steps to help fuel growth.

Critics said its easy monetary policy is not enough.

And Finance Minister Masajuro Shiokawa yesterday said his ministry will tell the BOJ that more monetary easing is necessary in order to boost domestic demand.

But he emphasised that the government would not press the central bank to take the controversial step of targeting a specific level of inflation.

The government downgraded its assessment of corporate profits in its report.

It noted that companies had expected profits to decline by 7.5 per cent in the April-September period in the BOJ's tankan survey last month, which measures corporate sentiment.

'Corporate profits...have flattened,' the report said.

But the decline was within the government's expectations and did not warrant a downgrade of the overall economic assessment, said the Cabinet Office's Mr Arai.

The report hinted that some aspects of the economy, such as job conditions, showed signs of bottoming out, although unemployment remained at 4.9 per cent - which was a record high.

However, a further worsening is expected on the trade front.--Reuters

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Immer noch Deflation bis zum Abwinken.
Wie lange dauert es noch, bis die Vertrauens-
krise und damit die Hyper-Infla beginnt?

MfG
G.

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